Another Feel-Good Quarter for the Neiman Marcus Group

The luxury retailer has turned in back-to-back positive quarters.

Geoffroy van Raemdonck, the new chief executive officer of Neiman Marcus Group, says the luxury retailer is recovering, that he's building a growth plan with a "bolder innovation agenda" and that liquidity levels are more than ample."Now that I'm here, my optimism has only grown," said van Raemdonck on Friday during his first conference call for Neiman's, which occurred just after the retailer's fiscal second-quarter results were released. Van Raemdonck succeeded Karen Katz as ceo on Feb. 12.Van Raemdonck seemed as excited about getting going in his first role as a retail ceo as he was by the positive results reported by NMG, including a net profit of $346.3 million in the latest quarter versus a loss of $140.6 million in the year-ago period.Adjusted earnings before interest, taxes, depreciation and amortization were $277.2 million, compared to $249.7 million in last year's period. The company cited a provisional noncash income tax benefit of $384.1 million in the latest quarter and non-cash impairment charges of $153.8 million in the second quarter of fiscal year 2017 as impacting the bottom line results.Revenues in Neiman's fiscal quarter ended Jan. 27 came to $1.48 billion, an increase of 6.2 percent from $1.4 billion for the second quarter of fiscal-year 2017. Comparable revenues increased 6.7 percent, marking Neiman's largest comp gain since the fourth quarter of 2012. Neiman's second fiscal quarter covers the holiday season, and its fiscal year ends on the last Saturday of July.Van Raemdonck, along with Dale Stapleton, senior vice president and interim chief financial officer, gave several reasons for the gains, including greater full-price selling, an improved inventory position, expense controls and double-digit digital growth. Neiman's underwent staff stream-linings last year and before.Another positive factor was NMG One, the common merchandise system geared for better planning, markdown optimization and inventory efficiencies across channels, and currently benefiting the company. The system went live in 2016 and suffered serious glitches, causing vendors to miss sales data and impairing ordering and replenishments, but there has been "meaningful traction" resolving implementation issues.Neiman's executives cited other highlights of the quarter, among them:• Business rose in all geographies and categories, with logo handbags such as Gucci, Balenciaga and Saint Laurent selling best.• Robust digital sales while those at stores were essentially flat.• Improved full-price selling, helping to lift gross margin to 30.9 percent, up 130 basis points.• More shopping by tourists in gateway cities like Miami, New York and Los Angeles, abetted by the weakening of the dollar against the euro.Also last quarter, 11 Last Call stores were closed, leaving 27 Last Call studios and outlets. The company continues to evaluate the off-price business though no other closings have been revealed.Van Raemdonck did warn about the likelihood that comparable sales gains later this year will moderate. "As pleased as we are with our performance for the second quarter, it is worth noting, however, that our comparisons to last year do become more difficult as we head into spring, since the results began to pick up in the second half of last fiscal year."He suggested that the see-now-buy-now movement, which was all the talk of the industry last year, is losing some steam. "I think the product cycle — there's a lot of acceleration and there was a lot of talk about buy-now-wear-now. We see a little bit of a slowdown in how brands are approaching the cycle of fashion."The $4.7 billion Dallas-based NMG is saddled with $4.4 billion in debt, largely stemming from the acquisition of the company by Ares Management LLC and the Canada Pension Plan Investment Board for $6 billion in 2013.Regarding servicing the debt, Neiman's executives say there's been no problem and that there's breathing room with maturities years away."We are very comfortable with our current liquidity of $842 million and this is a level of liquidity that, plus or minus $50 million or so, is kind of where we run throughout each quarter in the fiscal year," said Stapleton. "We're extremely comfortable with our liquidity providing us with sufficient funds to fund our operations as well as strategic initiatives. That's one critical point."The second critical point is...we don't see the first maturities until October of 2020. And so given where we sit today, we believe we have a sufficient kind of runway to think about our debt and our capital structure in a very thoughtful, deliberate and prudent way. Throughout the downturn, we have been very active in managing our liquidity, and we will be active and proactive in managing through our capital structure.""Leading the Neiman Marcus Group brings together two of my passions, fashion and business, especially business transformation," van Raemdonck said. "My experience driving other luxury brands has prepared me well." Van Raemdonck previously held senior-level positions at Louis Vuitton, Ralph Lauren and St. John Knits International.Van Raemdonck declined to comment on resurfacing speculation that the Hudson's Bay Co. had resumed talks with NMG owners about the possibility of buying the company. "We don't comment on speculation or rumors," he said in response to a question. "We have a great business. I feel great on the heels of two positive quarters."

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